Money is being printed to buy MSTR bonds, thus Bitcoin…via bond repo
Here’s how it works.
Here’s how it works.
Trump Confirms Bitcoin Reserve Plans—$15 Trillion Price Boom Predicted
Trump has confirmed he plans to establish a U.S. bitcoin strategic reserve...
www.forbes.com
The most powerful computer network on earth, uncensorable and unstoppable, is valued less than “Meta”/Facebook.
Can anybody explain in a concise manner (I don't want to watch a 2 hour video) to me why they are buying Microstrategy?
Michael Saylor is absolutely doing the right thing.
In the traditional finance world back in the day well managed corporations would issue shares in their company or do scrip for scrip takeovers when their stock was overvalued and then buy back shares later when their stock became undervalued. It makes sense. If you are a company whose stock trades on a price to earnings ratio of 40 and you do a share issuance and buy a competitor whose stock trades on a price to earnings ratio of 10 then you get huge earnings per share accretion.
Then later if their is a bear market and your stock drops and becomes undervalued then you start buying back shares. The master of this in the past was a man named Henry Singleton who ran Teledyne corporation.
Michael Saylor is basically following the same basic playbook in a way. Microstrategy shares are overvalued so he keeps issuing shares coupled with doing convertible bond issues. This increases the Bitcoin per share. However this strategy only works as long as the stock remains overvalued. The stock currently trades at around three times its net asset value (basically the net Bitcoin per share backing). Therefore the net asset backing per share would have to triple for today's buyer to breakeven. For the Net Asset Value (NAV) to triple that would require a combination of a rising Bitcoin price and more share and convertible bond issuance at high prices which increase the Bitcoin per share. This would likely require the Bitcoin price to increase 50 - 100% from here in combination with further share and convertible bond issuances for the NAV to hit the current share price. Its a positive feedback loop which only works under highly bullish conditions. If the premium to NAV dissipates then shareholders in Microstrategy would take a bath.
In summary Michael Saylor is doing the right thing but I do not see why investors would take the risk of buying Microstrategy shares at the current price as the whole strategy only works as long as the stock price remains elevated relative to NAV. The software business now earns basically nothing (the software business lost money in the most recent quarter) and the balance sheet already has some leverage therefore there is no source of funding to buy back shares if the share price of microstrategy ever fell to a discount to NAV under bear market conditions. Therefore the Bitcoin per share will only increase in a bullmarket. Sure if the bullish conditions continue and the MSTR continues to trade at 3 times NAV meanwhile the bitcoin per share keeps increasing then it will outperform Bitcoin. But the risk reward does not seem worth it to me. You may as well justr buy options on Bitcoin rather than buying Microstategy.
Michael Saylor is absolutely doing the right thing.
In the traditional finance world back in the day well managed corporations would issue shares in their company or do scrip for scrip takeovers when their stock was overvalued and then buy back shares later when their stock became undervalued. It makes sense. If you are a company whose stock trades on a price to earnings ratio of 40 and you do a share issuance and buy a competitor whose stock trades on a price to earnings ratio of 10 then you get huge earnings per share accretion.
Then later if their is a bear market and your stock drops and becomes undervalued then you start buying back shares. The master of this in the past was a man named Henry Singleton who ran Teledyne corporation.
Michael Saylor is basically following the same basic playbook in a way. Microstrategy shares are overvalued so he keeps issuing shares coupled with doing convertible bond issues. This increases the Bitcoin per share. However this strategy only works as long as the stock remains overvalued. The stock currently trades at around three times its net asset value (basically the net Bitcoin per share backing). Therefore the net asset backing per share would have to triple for today's buyer to breakeven. For the Net Asset Value (NAV) to triple that would require a combination of a rising Bitcoin price and more share and convertible bond issuance at high prices which increase the Bitcoin per share. This would likely require the Bitcoin price to increase 50 - 100% from here in combination with further share and convertible bond issuances for the NAV to hit the current share price. Its a positive feedback loop which only works under highly bullish conditions. If the premium to NAV dissipates then shareholders in Microstrategy would take a bath.
In summary Michael Saylor is doing the right thing but I do not see why investors would take the risk of buying Microstrategy shares at the current price as the whole strategy only works as long as the stock price remains elevated relative to NAV. The software business now earns basically nothing (the software business lost money in the most recent quarter) and the balance sheet already has some leverage therefore there is no source of funding to buy back shares if the share price of microstrategy ever fell to a discount to NAV under bear market conditions. Therefore the Bitcoin per share will only increase in a bullmarket. Sure if the bullish conditions continue and the MSTR continues to trade at 3 times NAV meanwhile the bitcoin per share keeps increasing then it will outperform Bitcoin. But the risk reward does not seem worth it to me. You may as well justr buy options on Bitcoin rather than buying Microstategy.
They take a bath in FIAT...but bitcoin per share doesn't change. Thinking of MSTR priced in terms of NAV, is an incorrect framing. What is Microsoft stock price to NAV? 30 times? 3x NAV is crazy low risk compared to betting on NVDA or MSFT that 95% of the stock price is forward expectations that they will continue to have radical breakthroughs and continue growing.
TLDR: MSTR, because 95% of its assets are BTC, has the most volatility of almost any stock. Issuing the convertible bonds is a bridge to traditional finance, especially the bond market, which has been saddled with artificially low interest rates for 30 years. Due to government and non-government regulations, many of the funds that are buying these bonds can only buy bonds, which previously were underperforming in real terms (7-15% inflation, 5% yield even on junk bonds). The bonds are basically 100% of bitcoin upside, and 0% downside...you can't lose, and the demand for these is only going to increase. Even in a bitcoin bear market, the bonds are dated like 5+ years out - they will still sell.
As long as the Fed keeps interest rates artificially low (below the inflation rate) which THEY HAVE TO, until currency collapses, I think MSTR is the only company that can do what they are doing. Sure Apple or MSFT could buy bitcoin, but it would be such a small percentage of their business, they would not have the wild volatility that MSTR has - MSTR is the only way to do this now, he has a 4 year head start, and 400k BTC. Yes, I think its more risky than just holding BTC, but I have strong conviction that bitcoin will go up forever, and therefore MSTR has a good chance of continuing to be a bridge from the huge pools of assets stuck and bleeding out in traditional finance, to bitcoin. I want to own part of that because right now it is the highest performing stock in terms of bitcoin per share than anything else.
I measure my wealth in bitcoin, and I want to continue to have more bitcoin every year - I wouldn't risk my real bitcoin, but my ETF bitcoin (not even redeemable for real bitcoin, yet) I figured why not. If bitcoin breaks, and the world gets worse, governments are coming for retirement accounts and its gone anyway. I had about 1k shares of MSTR from when it was cheap, and I bought more when it was $400, for every ETF "bitcoin" I sold, I'm only getting 0.4 BTC in MSTR, but if that even returns 10% BTC per year for the next 15 years? It will be 1.6 BTC per 1 sold now (at $400/share).
How long does hyperbitcoinization take? If it takes 30 years to drain the bond market (I think its the first domino to fall to bitcoin), then how much will my MSTR be worth, averaging 10% BTC per year? 6.4 BTC per 1 BTC invested now.
If it only takes 15 years to drain the bond market, then I would expect higher bitcoin returns in MSTR - maybe 25% over 15 years. So in only 10 years, that 0.4 BTC becomes 3.2 BTC (Rule of 72 - divide 72 by the CAGR and that is the number of years it takes to double, also works for inflation: 72 divided by inflation rate is the number of years for your purchasing power to be cut in half)
Everyone bends the knee to bitcoin, eventually. They see the benefits, and they are undeniable.
Governments hate bitcoin, but bitcoin doesn't care. They can die slowly as their fake money evaporates, or try to remain relevant by holding real money.
Just like with individuals: you can't change bitcoin, it changes you.
The same with governments: they can't change bitcoin, it will change them (for the better).
India and China were the last major countries to get on the gold standard, and they have been impoverished for 6 generations for that mistake. Bitcoin will be the same - wealth will flow from people and countries who don't have bitcoin, to those who do. Harder money wins, always.
MSTR playbook also creates new fiat money with every bond sale.
Many institutional investors only fund 10% of their actual bond purchases, and the other 90% is loaned from a large bank (the bank gets the bonds as collateral, and the institution pays interest on the bank loan). So of the $42 billion that MSTR is using to buy bitcoin with, $30+ billion is NEWLY CREATED FIAT MONEY. (all commercial bank loans are essentially new fiat printed out of thin air)
This is a continuing speculative attack on fiat, and will only accelerate the transition from fiat to bitcoin.
This is an "infinite money glitch" as long as fiat money is priced much cheaper than inflation, which it is, and will continue to be. Why this is so hard for people to understand, is beyond me. Fiat is by definition, infinite. There is no limit, and this doesn't break until interest rates are 20%+
Many institutional investors only fund 10% of their actual bond purchases, and the other 90% is loaned from a large bank (the bank gets the bonds as collateral, and the institution pays interest on the bank loan). So of the $42 billion that MSTR is using to buy bitcoin with, $30+ billion is NEWLY CREATED FIAT MONEY. (all commercial bank loans are essentially new fiat printed out of thin air)
This is a continuing speculative attack on fiat, and will only accelerate the transition from fiat to bitcoin.
This is an "infinite money glitch" as long as fiat money is priced much cheaper than inflation, which it is, and will continue to be. Why this is so hard for people to understand, is beyond me. Fiat is by definition, infinite. There is no limit, and this doesn't break until interest rates are 20%+
"Guys, I swear, Bitcoin is not a cult!"
Christianity started as a cult, until it became a culture.
Kaspa is a cult. Xrp is a cult . There’s loads of crypto cults
Oh boy
This is borderline blasphemy, but the sentiment you're expressing certainly clarifies the undeniably religious nature of the Bitcoin cult.
I think we're nearing the peak of Bitcoin euphoria. The election of Trump and all this speculation about the establishment of a "Bitcoin reserve" (a monumentally preposterous idea on literally every level) has created an entirely new narrative to justify pumping the price to new all-time highs. The hijinks Michael Saylor is pulling with MSTR convertible bonds adds further fuel to the fire, as well as Wall Street's belated entry into the market with its ETFs (which were very much an "if you can't beat 'em, join 'em" cynical play to take advantage of dumb retail money).
But at the end of the day, like all bubbles, there is simply nothing inside this Bitcoin mania but hot air, and it will ultimately collapse in spectacular fashion. There will not be a "Bitcoin reserve". Bitcoin maxis will be shocked - absolutely shocked, I tell you! - to find out that Donald Trump, like every good politician, promises all sorts of things on the campaign trail, and ends up delivering on few if any of them. Saylor fanboys will be devastated when MSTR implodes and they discover that, actually, there is no such thing as an "infinite money glitch" and that while dollars can be created out of thin air via debt, value can't. And when the Bitcoin ETFs crater and evaporate billions of dollars of retail bagholders' wealth, Wall Street will shrug their shoulders and say, "Hey, that's the nature of the market" (they will, of course, have been pocketing their expense ratio fees the entire time).
Bitcoin and crypto will ultimately be remembered as just another peg on the stool of our glaringly delusional and dysfunctional age, along with other farcical absurdities like the idea that men can become women, that windmills and solar panels can power the modern world and that countries should not have borders. Eventually, reality always asserts itself, and all of these sort of delusional manias run out of steam when the weight of their absurdities simply becomes too much for society and the economy to bear. We've past that peak with transgenderism and green energy, and crypto is up next. Ironically, it may be the wildly unchecked greed and ambition of the crypto community itself that ends up destroying it (recall that hubris is always ultimately punished by nemesis). The entire project to establish a Bitcoin reserve, and thus dump the bags of billionaire whales onto the U.S. taxpayer, and the means by which this design has been pursued (essentially trying to buy off the incoming President through campaign donations) will result in Bitcoin becoming a political issue that will be hardly fought. And given that crypto is ultimately very low on Trump's agenda compared to his other ambitions, I predict that it will be quickly abandoned and left to die in favor of other more important items.
At some point people will come to their senses and the race to the exits will begin. And the idea that 21 million tradable internet tokens could be the most valuable commodity in the world will be seen, in retrospect, as both hilarious and insane, and will forever serve as an indictment of both mankind's eternal greed and our modern era's uniquely delusional character.
@scorpion
People are already racing for the exits, you are the bag holder.
I know it’s a tough pill to swallow.
Where do you get your information? Have you ever read a book written by someone who understands Bitcoin?
What if Trump does enact a reserve? Does it count if he simply holds the 200k bitcoin the government currently has? Or does he need to purchase some? Name your terms. Can you draw a line somewhere, give us a data point that could prove that you might be right?
Telling men to avoid Bitcoin has been bad advice. Everyone who listened to you is now worse off, financially, and also less free. You have not studied money, you think government theft via inflation is good, and you’ve not studied Austrian economics.
Everything that is happening now, with nation state adoption, US state adoption, and corporate adoption, is proving you wrong, daily. Bitcoin ATH’s are proving you wrong, daily.
You are right about one thing, there is a bubble.
People are already racing for the exits, you are the bag holder.
I know it’s a tough pill to swallow.
Where do you get your information? Have you ever read a book written by someone who understands Bitcoin?
What if Trump does enact a reserve? Does it count if he simply holds the 200k bitcoin the government currently has? Or does he need to purchase some? Name your terms. Can you draw a line somewhere, give us a data point that could prove that you might be right?
Telling men to avoid Bitcoin has been bad advice. Everyone who listened to you is now worse off, financially, and also less free. You have not studied money, you think government theft via inflation is good, and you’ve not studied Austrian economics.
Everything that is happening now, with nation state adoption, US state adoption, and corporate adoption, is proving you wrong, daily. Bitcoin ATH’s are proving you wrong, daily.
You are right about one thing, there is a bubble.
We have only been in the bull market phase for about 2 months. With past trends, these phases tend to last 6-12 months. I think we will still be going up for a few more months. Eventually it will crash, but whether it crashes to 70k, 100k, or 150k, remains to be seen.
For those who want to make profits this cycle, I would consider doing a DCA sell strategy over the coming months. (Note: I am not an professional investor and this is not investment advice.)
For those who want to make profits this cycle, I would consider doing a DCA sell strategy over the coming months. (Note: I am not an professional investor and this is not investment advice.)
I've read a lot about Bitcoin. I know much more about Bitcoin that probably 90% of the people who own it, and I've known about Bitcoin for longer than you have.
If I had to guess, whatever Bitcoin the U.S. government currently holds (200k if you say so, I'm not sure what the amount is) will be declared the "Bitcoin strategic reserve" and, at best, legislation may make it through Congress that says it will not be sold any time soon. I am extremely dubious anything beyond that will happen.
I've told men to invest in their health, in developing lucrative professional skills/knowledge, in strengthening their network of contacts and have advised them to put their money in stocks, real estate and gold. Anyone who has followed that advice is probably doing just fine in life. Many guys who bought Bitcoin early are also doing well, if they managed to HODL (most do not have your diamond hands and resolve). Of course, none of it really matters until you sell. Let's recall that Bernie Madoff was once regarded as one of the most successful and reliable fund managers on Wall Street.
And that's what you and Blade Runner don't get: I have studied money. I've read Rothbard. I've read von Mises. Hell, I read that Jekyll Island book you've been going on about lately 15 years ago. I understand perfectly well what I'm talking about. I understand perfectly well the flaws inherent to our financial and banking system. I agree with you on many (probably most!) points in that regard. Our major disagreement is simply over Bitcoin. You see it as, essentially, nothing less than a miraculous discovery that will free mankind from the tyranny of the banking cartel. I see it as simply the latest in a long procession of ponzi schemes and financial manias, a tradition that goes back centuries (probably millennia - for as long as money itself has existed, no doubt). You say, "This time it's different!" while I'm simply saying, "Nah, probably not."
You've got boundless enthusiasm and 15 years of price appreciation on your side, I've got human nature and centuries' worth of examples of similar financial fads and follies on mine.
Thanks for the reasoned response. Let’s see if a G7 nation (or the USA) buys extra bitcoin.